FEREDE & HILL: Smith should introduce single 8% income tax for all Albertans

Ergete Ferede is a professor of economics at MacEwan University and Tegan Hill is director of Alberta policy studies at the Fraser InstituteNow more than ever, in the face of U.S. tariffs and a new federal government that has yet to provide clarity on its energy policies, the Smith government should do what it can to make Alberta competitive including on the tax front.As recently as 2014, Alberta was a beacon of tax competitiveness in North America. The province’s single 10 per cent personal income tax (PIT) rate, the lowest in the country, helped attract talent and investment while reinforcing Alberta’s entrepreneurial spirit. But in 2015, the NDP government, among other policy changes, introduced a five-bracket tax system including a top rate of 15 per cent. Today, Alberta’s top combined (federal and provincial/state) PIT rate is 48 per cent, which is tenth highest in North America and far higher than rates in energy-producing jurisdictions such as Texas and North Dakota. .To fulfil its election promises, the Smith government recently introduced a new 8 per cent personal income tax bracket for the first $60,000 of income, effectively reducing tax rates by 20 per cent for individuals earning below that threshold. While this reform helps lower the tax burden for many Albertans, its impact is modest in terms of stimulating economic growth, particularly in the face of Trump’s tariffs.But if the Smith government introduced a single PIT rate of 8 per cent, aligned with the province’s current 8 per cent business income tax rate, it would help attract top talent and investment in the province, which is key to economic growth and job creation.Of course, opponents of a single 8 per cent tax may argue that the government can’t afford it. But what are the revenue implications of this proposal?.According to a recent study published by the Fraser Institute, an immediate shift to a single 8 per cent PIT rate would reduce PIT revenues by $6.1 billion in the first year — a 35.6 per cent drop. A more gradual approach over three years would initially see a modest $264 million decline in 2025 (1.5 per cent,) growing to a $6.9 billion reduction by 2027.At first glance, these numbers might seem daunting. But the study likely overestimates the fiscal impact. Why? Because it doesn’t fully account for the economic growth and increased investment the tax change would help produce. Again, lower PIT rates help attract high-skilled workers, encourage entrepreneurship and spark broader economic activity — all of which can increase revenues from other sources, offsetting the revenue losses to the government’s coffer. .One must also consider the longer-term impact of remaining uncompetitive. With jurisdictions across North America vying for talent and capital, Alberta risks falling behind if it clings to a tax system that stifles rather than stimulates growth.Amid the current economic uncertainty, it’s crucial that Alberta is competitive on all fronts. By meaningfully reducing personal income taxes, the Smith government can help ensure a strong Alberta. Ergete Ferede is a professor of economics at MacEwan University and Tegan Hill is director of Alberta policy studies at the Fraser Institute.

FEREDE & HILL: Smith should introduce single 8% income tax for all Albertans

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